December 14, 2015
VMware said today it's backing out of the Virtustream cloud partnership with EMC, ending one of the most poorly timed ventures in the technology industry.
VMware Inc. (NYSE: VMW) and EMC Corp. (NYSE: EMC) had announced that partnership in October, a week after the announcement that both EMC, and EMC's controlling interest in VMware, were being acquired by Dell Technologies (Nasdaq: DELL).
Dell's $67 billion acquisition of EMC, along with EMC's 80% ownership of VMware, is a record-sized tech industry acquisition. After that announcement, rather than keep things stable to calm investors down, a week later EMC and VMware announced a new partnership, based on assets from Virtustream, a company EMC acquired recently. The new company would specialize in hybrid clouds, jointly owned 50–50 by VMware and EMC, with financial results to be consolidated into VMware's financial statements beginning in the first quarter of 2016. (See VMware, EMC Launch Cloud Partnership Amid Dell Acquisition – Confused Yet?)
In reaction, VMware's stock plummeted more than 20% the following day, trading at $54.72 in mid-afternoon on October 21. In addition to concerns about the Virtustream partnership, the market was also worried about projections for soft results in the upcoming quarter. I imagine the scene at Dell headquarters looked like this. (See VMware Tanks Over Cloud Concerns.)
VMware still can't catch a break with investors. Monday afternoon, the stock was trading at $57.15.
In a government regulatory filing Friday, VMware revealed it's pulling out of the partnership. Asked for comment by Light Reading, VMware emailed a statement confirming its intent to withdraw, and continue operate its VMware vCloud Air hybrid cloud business, as well as offering software solutions to cloud providers through its VMware vCloud Air network.
Want to know more about the cloud? Visit Light Reading's Cloud Services content channel.
For its part, EMC is "100% committed to Virtustream," a spokesman said in an emailed statement. Virtusteam is the fastest-growing entity of EMC-owned companies -- which EMC calls the Federation -- and is the "focal point" of EMC enterprises cloud strategy, according to the statement. "Virtustream will stay tightly aligned to VMware through the Federation partner model." Virtustream will also incorporate the cloud capabilities of EMC Information Infrastructure, including Storage Managed Services and Object Storage Services, as well as VCE Cloud Managed services.
The change comes as EMC announced a milestone in the process of being acquired by Dell: Expiration of a "go shop" period that would have allowed another buyer to step in with a better offer. "With the 'go shop' period now expired, EMC will continue to work with Michael Dell, MSD Partners and Silver Lake to pursue the combination of Dell and EMC."
Meanwhile, Dell is looking to sell off Perot Systems, an outsourcing company, for more than $5 billion, to pay for the deal, according to a report on re/code.
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